The art of war: know your enemy’s patents, and your own

IDEAS AND OWNERSHIP: The concept of protecting ideas and innovation by legal means dates back to antiquity. But many of our existing laws are under strain, their suitability and ultimate purpose called…

IDEAS AND OWNERSHIP: The concept of protecting ideas and innovation by legal means dates back to antiquity. But many of our existing laws are under strain, their suitability and ultimate purpose called into question.

Here, Kimberlee Weatherall unpacks the ways in which patents are being acquired by companies in an escalating battle for offensive and defensive dominance.

Justice Nicholas in the Federal Court in Sydney is currently hearing a patent case in which Cancer Voices Australia is challenging a patent owned by Myriad Genetics relating to gene mutations that cause women to be more susceptible to breast cancer.

The case is related to some similar litigation that has been going on in the US, and raises some fundamental questions about what kinds of things can be patented. In many ways, though, this is a very “classic” patent case.

Myriad uses its patent to assert exclusive rights to undertake activities covered in the patent: namely, testing for the gene mutations. The patent ensures that no-one else can perform such tests without Myriad’s permission.

This is how we think of patent working – whether or not we like the fact that genes and methods for identifying them in a patient can be “owned” by someone.

But you might be surprised to know that many, perhaps even most, patents today are not used this way. In fact, patents are used in a whole range of different, strategic ways that raise interesting questions about the patent system and whether it is doing what we think it is doing – that is, providing incentives for inventors.

One way we see patents used these days is in the accumulation of large patent portfolios. Economists have tracked the rise of such portfolios, but in a way, all you have to do is look at the yearly patent league tables, which will tell you, for example, that IBM was granted more than 6,000 patents in the US in 2011, and Samsung more than 4,800.

In fact, most patent offices around the world have been experiencing sustained rises in the number of applications for patents, and in patents granted, including in Australia.

Alternatively, you could follow the tech news, which over the last year or so has been full of stories about large-scale patent acquisitions as companies try to build up their position. Google, for example, acquired Motorola Mobility, paying US$12.5 billion for its 17,000 patents and 7,500 patent applications – after failing to acquire Nortel’s 6,000 patents (which was acquired by an Apple-led consortium for US$4.5 billion).

Staking territory

Why would a company need masses and masses of patents? There are a few reasons. One is to stake out a technological “territory” and deter or block potential competitors. Evidence from research suggests that smaller firms do avoid working in areas of technology that are heavily patented already.

Another reason would be for offensive use: a company with a large number of patents can overwhelm a competitor they allege is infringing on their technology with a barrage of different patents. The more patents that are alleged to be infringed, the more costly the option of litigation becomes for the alleged infringer.

In theory the alleged infringer can challenge the validity of the patents, but patent litigation is expensive at the best of times, and challenging multiple patents is a very daunting prospect. In these situations, the company with multiple patents may be able to force a settlement – perhaps including the alleged infringer paying royalties or changing their product.

The best defence is …

The flipside of offensive use of a patent portfolio is defensive use: a company might try to build up a strong patent portfolio so that, if it’s threatened with litigation, it can bring its own countersuit, using its own patent battalion – perhaps forcing a cross-licensing deal on much better terms than it would get without its own patents.

We’ve recently seen inklings of all of this in Australia, in the Apple/Samsung patent battle. The lawsuit delayed the launch of the Galaxy Tab 10.1 for some four months – until a mere couple of weeks before Christmas.

In that case, Apple – which has spent the last five years or so building up quite the patent portfolio in Australia – has asserted a record number of 22 patents against Samsung devices including the Galaxy Tab 10.1.

Both cases look likely to be heard this year. The case is unprecedented in its size for Australia, and even that litigation is only part of the whole picture of the battle. There have been other cases in the US, Germany, the Netherlands, the UK, France, Italy, and South Korea.

You’d expect, in the end, to see some kind of global deal being done here. In the meantime, the patent missiles fly and the lawyers get paid. And that’s without mentioning Apple is also fighting with HTC and with Nokia.

Bring on the trolls

Patent portfolios, Apple and Samsung style, are not an end to the patent strategies that have developed in recent times. We have also seen the rise of the non-practising entity (NPE) – sometimes perjoratively referred to as the patent troll.

An NPE amasses a patent portfolio, not to defend its own product territory or to attack competitors, but solely for the purpose of licensing. In other words, a non-practising entity is just that: it doesn’t itself make or sell products.

Some argue NPEs are a great way for small inventors, for whom litigation is not an option, to get paid. Others argue that NPEs are “trolls” exacting tolls on invention.

Very recent research suggests these companies are more often involved as repeat patent litigators than other kinds of patent holders, although they often lose.

In other words, all these new patent strategies are related. The build up of patent portfolios by some companies has made it imperative for others to join in, meaning an overall rise in the numbers of patents being granted, and an increase in costs for firms, especially in some of these high-tech fields.

Some of these patents are making their way into the portfolios of non-practising entities. In this world, it seems that many companies are locked into playing the patent game, even if it is increasingly expensive and, in at least some cases, a distraction from the work of innovating and selling new products.

All these strategies are a long way from classical thinking about the way patents work. Where patents are acquired defensively, end up being sold to an NPE, and are asserted against an inventive firm, you have to wonder where along that line those patents provided any incentive for investment in research and development – and whether that incentive outweighs the cost to innovation when the final inventive firm targeted by the NPE is forced to license or fold.

You have to wonder, in the great patent wars between Apple and Samsung and others, whether we have lost sight of the patent system’s goals.

And you have to wonder whether patents have become so abstracted from the realities of research and invention that they have started to bear some resemblance to the complex financial products that now seem to plague our financial system: complex, impossible for the ordinary person to understand, and no longer doing their job.

With firms locked into the cycle of patent or perish, it is evident, to me at least, that we need more serious thinking about just what these government monopolies are about, and whether the complexity and abstraction of the system can be tamed.

I don’t have the answers, but I do have a lot of questions.
This is the third part of Ideas and Ownership. To read the other instalments, click on the links below:

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